Economic Growth Forecast Upgraded

THE UK received another boost today when economic forecasts were sharply upgraded.

PUBLISHED: 12:46, Tue, Sep 3, 2013

Britain's economic recovery continues

Activity is expanding at encouraging rates in North America, Japan and the United Kingdom, while the euro area as a whole is no longer in recession.

Organisation for Economic Co-Operation and Development report

In the latest sign that the recovery is picking up momentum, an influential economic think-tank predicted 1.5% growth in the UK in 2013 - up from a forecast of 0.8% issued in May.

In its latest assessment of the global economy, the Organisation for Economic Co-Operation and Development (OECD) said: "The pace of recovery in the major advanced economies improved in the second quarter and growth is expected to be maintained at a similar rate in the second half of the year. Activity is expanding at encouraging rates in North America, Japan and the United Kingdom, while the euro area as a whole is no longer in recession."

But it warned that the world's recovery from the prolonged downturn sparked by the financial crisis of 2007/08 is not yet assured, and said "unconventional" methods - which could include quantitative easing and ultra-low interest rates - will continue to be needed to avoid "derailing" the return to economic health.

"A sustainable recovery is not yet firmly established and important risks remain," said the OECD's Interim Economic Assessment. "It is necessary to continue to support demand, including through unconventional monetary policies, in order to minimise the risk of the recovery being derailed.

The analysis from the Paris-based group - which represents 34 major economies - follows official figures showing the UK economy expanded by 0.7% in the second quarter of 2013 and 0.3% in the first three months of the year.

The OECD forecast annualised quarter-on-quarter increases in Britain's GDP of 3.7% for the current quarter and 3.2% in the last three months of the year.

The implied growth of 1.5% for 2013 as a whole was behind the USA (1.7%) and Japan (1.6%) but ahead of major eurozone states like Germany (0.7%) and France (0.3%), while Italy's GDP was forecast to decline by 1.8% over the year.

The OECD warned that the euro area "remains vulnerable to renewed financial, banking and sovereign debt tensions", though it said that agreement on a common banking supervision system across the single currency area should help ease problems.

Slowing growth in major emerging countries such as China meant that global growth was "sluggish" overall, and the report warned of the potential for worldwide destabilisation from a repeat of earlier episodes of "brinksmanship" in Washington over the setting of the US Budget.

With unemployment high and inflationary pressures weak in advanced economies, "considerable" monetary policy support should remain in place to support demand, said the OECD, though it acknowledged that the precise policy mix to adopt would vary from country to country depending on its progress towards recovery.

Prime Minister David Cameron welcomes the positive economic news

Prime Minister David Cameron's official spokesman said: "I think this is one of a number of indicators that point in a favourable direction.

"We would continue to say - and the Chancellor has done - that the Government's priority is to secure the recovery and keep going with the measures we are taking to deal with the deficit and implement economic reforms.

"We are going to keep sticking at that, because they are the right things to do."